2015 (4) TMI 1168 - AT - Income Tax

Payments for Business Purposes not Deemed Dividends

The Tribunal upheld the CIT(A)'s decision that the payments made by various companies were for business purposes and not deemed dividends under Section ... Deemed dividend u/s 2(22) - accumulated profit - share premium amount - shareholding more than 10% - Transaction between the two companies or between the company and assessee - receipt of advance for business purposes - Held that:- CIT(A) thoroughly examined the issue in detail after admitted the additional evidence and calling the remand report from the Assessing Officer. He held that these transactions made between the companies for business purposes, which does not form part of loan and advances as envisages in Section 2(22)(e) of the Act. The ld DR has not controverted the findings given by the ld CIT(A). The case laws relied upon by the A.R. are squarely applicable on the case of assessee, therefore, we do not find any reason to intervene in the order of ld CIT(A). Accordingly, we uphold the order of ld. CIT(A) - Decided in favour of assessee. Issues Involved:1. Whether the amounts paid by various companies to other companies, where the assessee held significant shares, fall within the purview of section 2(22)(e) of the Income Tax Act, 1961, as deemed dividend.Issue-wise Analysis:1. Amount Paid by M/s Mistry Meadows Pvt. Ltd. to M/s Benchmark Infotech Pvt. Ltd.:The Assessing Officer (AO) considered Rs. 25,25,000 paid by M/s Mistry Meadows Pvt. Ltd. to M/s Benchmark Infotech Pvt. Ltd. as deemed dividend under Section 2(22)(e) since the assessee held significant shares in both companies. The AO argued that the accumulated profits were sufficient to cover this amount. However, the CIT(A) accepted the assessee's argument that this payment was for business purposes, specifically for the proposed purchase of land, and not a loan or advance. The CIT(A) relied on various judicial precedents, including CIT Vs. Creative Dyeing and Printing P. Ltd., to conclude that such payments do not fall under Section 2(22)(e).2. Amount Advanced by M/s Manglam Multiplex Pvt. Ltd. to M/s Benchmark Infotech Pvt. Ltd.:The AO treated Rs. 7,85,559 (50% of the accumulated profit) as deemed dividend, arguing that the Rs. 9 crores advanced was not a business transaction. The CIT(A) found that the payment was part of a joint development agreement for land development, supported by additional evidence such as an MOU and application forms submitted to the Director Town and Country Planning Development of Haryana Government. The CIT(A) concluded that these were business transactions and not loans or advances under Section 2(22)(e).3. Amount Advanced by M/s Mistry Meadows Pvt. Ltd. to M/s Martial Buildcon Pvt. Ltd.:The AO considered Rs. 13,76,629 as deemed dividend, arguing it was an advance covered under Section 2(22)(e). The CIT(A) found that this payment was an initial payment for the purchase of land, supported by agreements and additional evidence. The CIT(A) ruled that such payments are business transactions and not loans or advances.4. Amount Advanced by M/s Manglam Multiplex Pvt. Ltd. to M/s Martial Buildcon Pvt. Ltd.:The AO treated Rs. 16,71,302 (50% of the accumulated profit) as deemed dividend. The CIT(A) found that this payment was for the initial payment for land purchase, supported by agreements. The CIT(A) concluded that this was a business transaction and not a loan or advance under Section 2(22)(e).5. Amount Advanced by M/s B&B Mercantile Pvt. Ltd. to M/s Martial Buildcon Pvt. Ltd.:The AO considered Rs. 40,23,050 as deemed dividend, arguing it was an advance covered under Section 2(22)(e). The CIT(A) found that this payment was part of a business transaction, supported by an MOU and additional evidence. The CIT(A) ruled that such payments are business transactions and not loans or advances.Conclusion:The CIT(A) thoroughly examined the evidence and concluded that the payments in question were for business purposes and not loans or advances under Section 2(22)(e). The Tribunal upheld the CIT(A)'s order, finding no reason to intervene. The revenue's appeals were dismissed.